Be it Enacted by the Senate and House of Representatives in General Court convened:

1 New Section; Retirement System; Cost of Living Adjustment. Amend RSA 100-A by inserting after section 41-d the following new section:

100-A:41-e Cost of Living Adjustment; Supplemental Allowance.

I. Any retired member of the New Hampshire retirement system or any of its predecessor systems, who has been retired for at least 60 months prior to or on July 1, 2019, or any beneficiary of such member who is receiving an allowance, shall be entitled to receive a cost of living adjustment (COLA) as a supplemental allowance, on the retired member's first anniversary date occurring after July 1, 2020. The amount of such COLA shall be 1.5 percent.

II. The total actuarial cost of the supplemental allowance under paragraph I, as determined by the actuary and certified by the board of trustees of the retirement system, shall be terminally funded from the state annuity accumulation fund.

III. The supplemental allowance shall become a permanent addition to the beneficiary's base retirement allowance and shall be included in the monthly annuity paid to the retired member, or to the member’s beneficiary if the member is deceased and the beneficiary is receiving an allowance under RSA 100-A:8, 100-A:9, 100-A:12, 100-A:13, or similar provisions of predecessor systems.

* The New Hampshire Retirement System states it is not able to separate the fiscal impact of this legislation between county and local government, therefore the fiscal impact is shown together as political subdivisions.

METHODOLOGY:

This bill grants a cost of living adjustment (COLA) of 1.5 percent to all retirees or beneficiaries who have been retired for at least 60 months (5 years) prior to or on July 1, 2019 payable on the retired member's first anniversary date occurring after July 1, 2020, and funded from the state annuity accumulation fund under RSA 100-A:16, II. The COLA shall become a permanent addition to the member or beneficiary's base retirement allowance.

The New Hampshire Retirement System's actuary provided valuations based upon data used in the annual actuarial valuation as of June 30, 2017. The valuation assumes an annual rate of return of 7.25 percent, wage inflation of 3.25 percent per year (2.75 percent for teachers) and an amortization period of a closed 20-year period beginning in FY 2020. Actual FY 2022-2023 employer rates will be based on the actuarial valuation of June 30, 2019. The allocation of this benefit is estimated as follows:

State

Employer Pension Rates as a Percent of Payroll

Current 2020-2021 Rates

Impact of Proposal

Proposed 2020-2021 Rates

Employees

10.88%

0.11%

10.99%

Police

24.77%

0.34%

25.11%

Fire

26.43%

0.35%

26.78%

Expected Employer Dollar Increase (Decrease) Due to Proposal

FY 2020

FY 2021

FY 2022

FY 2023

Employees

-

-

$692,000

$715,000

Police

-

-

$304,000

$314,000

Fire

-

-

$16,000

$16,000

TOTAL

-

-

$1,012,000

$1,045,000

Political Subdivisions

Employer Pension Rates as a Percent of Payroll

Current 2020-2021 Rates

Impact of Proposal

Proposed 2020-2021 Rates

Employees

10.88%

0.11%

10.99%

Teachers

15.99%

0.18%

16.17%

Police

24.77%

0.34%

25.11%

Fire

26.43%

0.35%

26.78%

Expected Employer Dollar Increase (Decrease) Due to Proposal

FY 2020

FY 2021

FY 2022

FY 2023

Employees

-

-

$830,000

$857,000

Teachers

-

-

$2,213,000

$2,274,000

Police

-

-

$857,000

$885,000

Fire

-

-

$492,000

$508,000

TOTAL

-

-

$4,392,000

$4,524,000

The projected increase to the unfunded actuarial accrued liability as of June 30, 2019 (end of FY 19) is $67.7 million. The COLA is effective after July 1, 2020 (FY 2021). Assuming a 7.25 percent rate of return for 2 years, the unfunded actuarial accrued liability would grow to $77.9 million in FY 2021. This amount represents the cost to "terminally fund" the COLA up-front, rather than through future employer contribution rates.

The NHRS states the expected cost to make these changes to the NHRS pension database software Pension Gold is estimated to be approximately $10,000 in other funds.